Flexport: Companies May Avoid USMCA Auto Part Exemption After Steel and Aluminum Tariffs Increase
Given an increase in Section 232 tariffs on steel and aluminum (see 2506030071), it may be less costly for importers to no longer take advantage of an exemption from tariffs on autos and auto parts for USMCA goods, according to a tariff expert at supply chain logistics platform Flexport.
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The "counterintuitive quirk" that has arisen from the increase in steel and aluminum tariffs to 50% is that "if you import USMCA-qualifying auto parts that flag for both the 232 order on auto parts and the 232 order on steel or aluminum, it's actually probably cheaper now to not claim USMCA," said Marcus Eeman, Flexport senior global customs manager, on a June 4 webinar about the tariffs.
"Whereas before you could claim USMCA for the excluded from the 232 on the auto parts, you'd still have to pay the 25% [tariff] for Section 232 on steel and aluminum," Eeman continued. "But now, if you claim USMCA [exemption on the] auto parts ... that exclusion means you're no longer subject to the 25% [tariff for] auto and you would now have to pay the 50% [tariff for] steel and aluminum. ... If you're claiming USMCA on it, it's probably more expensive now because you are going to be forced into paying the 232 duties on steel and aluminum."
Eeman cautioned, however, to look at the good's supply chain and its origin to ensure that not declaring a USMCA exemption is a good strategy for the company.
"There's maybe some other considerations. If you're using USMCA to build sub-assemblies here and you're trying to have originating products going down the line, don't just say, 'Marcus said, never claim USMCA on auto parts again.' There's some consideration here," Eeman said. "But all of a sudden, we've seen a little bit of a change in the flow, where maybe USMCA may no longer be [to] your advantage. Do run it against your entire kind of supply chain."
Eeman also said companies that don't import auto parts should be aware of changes to the tariff priority order since it could affect their costs.
Prior to June 4, if companies were subject to tariffs on Canada and Mexico that are based on the fentanyl emergency, the Section 232 duties on steel and aluminum wouldn't apply. However, the priority order changed as of June 4, meaning that a company's good is now subject to 50% Section 232 duties on steel and aluminum before it is subject to the 25% fentanyl tariffs, Eeman said.
"What this does is this effectively moves goods that had flagged for both the [International Emergency Economic Powers Act]/fentanyl [duties] from Canada or Mexico and Section 232 [duties] from 25% to a higher 50% [rate]. ... There's no more favorable treatment that could have been coming from Canada or Mexico. They are now evening out. And so, that 50% [duty] is going to be felt for Canadian and Mexican products as well. They don't get a bypass or anything like that," Eeman said.